Case Note & Summary
The litigation arose from a suit filed in February 2002 by a banking company acting as a debenture trustee for recovery of Rs. 997 lacs together with interest and other charges under 12.5% secured redeemable non-convertible debentures issued by a limited company. The first defendant, the issuing company, raised a jurisdictional objection contending that the suit should be tried exclusively by the Debts Recovery Tribunal under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993. The learned Single Judge accepted this objection and by order dated 6 January 2015 directed the plaint to be returned for presentation to the appropriate DRT, relying on a Division Bench decision in Krishna Filaments Limited v. Industrial Development Bank of India which had held such suits maintainable on the original side, but the Single Judge considered that a later Division Bench in Alpha and Omega Diagnostics India Ltd. had cast doubt on that proposition. The plaintiff-bank preferred an appeal. A Division Bench referred three questions to a larger Bench: (i) whether a debenture trustee suing for debentureholders can file a suit on the original side; (ii) whether such proceedings can be initiated before the DRT; and (iii) whether Krishna Filaments applies and whether there is a conflict between the two Division Bench judgments. The Full Bench considered the provisions of the RDB Act, particularly the definition of ‘debt’ under Section 2(g) and the exclusive jurisdiction under Section 17 read with Section 1(4). The court noted that the RDB Act is meant for expeditious recovery of debts due to banks and financial institutions themselves, not for debts due to third parties even if the bank acts as a trustee. The suit was not for recovery of the bank’s own money but on behalf of debentureholders. The Full Bench held that such a suit is maintainable on the original side of the High Court and the DRT does not have exclusive jurisdiction. The court affirmed the law laid down in Krishna Filaments Limited and distinguished the observations in Alpha and Omega Diagnostics India Ltd. The reference was answered accordingly, leaving the factual determination of the nature of the plaint to the Division Bench hearing the appeal.
Headnote
A) Jurisdiction - Debenture Trustee's Suit - Maintainability on Original Side - Recovery of Debts Due to Banks and Financial Institutions Act, 1993, Sections 17, 2(g) - Suits filed by banks or financial institutions in their capacity as debenture trustees on behalf of debenture holders are not for recovery of debts due to themselves but on behalf of third parties, hence do not fall within exclusive jurisdiction of DRT; such suits are maintainable on the original side of the High Court (Paras 12-14). B) Definition of Debt - Scope under RDB Act - Section 2(g) - 'Debt' must be interpreted as liability due to the bank or financial institution from any person, not liability payable to third parties even if bank acts as trustee - Held, phrase 'due to any bank or financial institution' qualifies the debt and excludes debts not due to the bank itself (Paras 13-14). C) Precedent - Krishna Filaments Limited v. Industrial Development Bank of India - Ratio and Applicability - The Division Bench in Krishna Filaments correctly held that suits by banks as debenture trustees are not covered by RDB Act; affirmed that distinction between bank's own dues and dues of debenture holders is fundamental - Held, observations in Alpha and Omega Diagnostics India Ltd. are distinguishable and do not affect ratio of Krishna Filaments (Paras 8-9, 12).
Issue of Consideration
Whether a suit filed by a bank or financial institution as a debenture trustee for recovery of amounts payable to debenture holders is maintainable on the original side of the High Court or whether only the Debts Recovery Tribunal (DRT) has exclusive jurisdiction under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993.
Final Decision
The Full Bench answered the reference by holding that a suit filed by a bank or financial institution as a debenture trustee for recovery of sums payable to debentureholders is maintainable on the original side of the High Court and is not barred by the RDB Act; the DRT does not have exclusive jurisdiction over such suits; the decision in Krishna Filaments Limited is good law and applicable.
Law Points
- Suit by bank as debenture trustee is not a suit for recovery of debt due to itself
- hence not barred by RDB Act
- Exclusive jurisdiction of DRT under Section 17 RDB Act is limited to suits for recovery of debts due to banks/financial institutions
- Definition of 'debt' under Section 2(g) of RDB Act must be interpreted in the context of the Act's purpose
- Decision in Krishna Filaments Limited upheld as good law
- Distinction between bank suing for own dues and suing as trustee for third parties is fundamental
